In This Article:
My approach to swing trading has changed after years of studying charts and trading through different market conditions. The biggest improvement has been deciding what would make me enter, where I would exit, and how much I would trade before I place an order.
These are the rules I currently follow. They reflect my own style and experience, so use them as an example of how a trading plan can be written, not as a promise of results or a rule set that will fit every trader.
My swing trading rules
My process covers stock selection, setups, market conditions, entries, risk, trade management, and re-entries. I try to make each rule clear enough that I can follow it when the market is moving quickly.
| Part of the plan | My current rule |
|---|---|
| Stock selection | Scan 1-, 3-, and 6-month leaders; prefer strong liquidity, price above $2–$3, and ADR above 6%. |
| Setups | Focus on high-tight flags, bull flags, base breakouts, and trendbreaks. |
| Market context | Review SPY and QQQ trend and market breadth before taking setups. |
| Entry | Require price to be above the prior day’s high and break my planned opening-range trigger. |
| Initial stop | Use the low of day when it fits the setup; skip if the stop distance is wider than 0.8 ADR. |
| Position size | Usually allocate around 10% of account equity, while checking the actual dollar risk to the stop. |
| Profit-taking | Sell 25% of the original position at 2.5 ADR and another 25% at 5 ADR. |
| Managing the rest | Reduce some remaining shares on a daily close below the 10-day SMA; exit the rest on a close below the 20-day SMA. |
| Re-entry | After a stop-out, consider another entry only if price takes out the high of day and remains above the prior day’s high. Maximum two attempts per stock per day. |
1. Scan for strong stocks
I start by scanning for stocks that have been strong over the past 1, 3, and 6 months. I usually review the strongest names from each list and pay attention to stocks appearing across multiple periods.
My preferred starting criteria are:
- Daily dollar volume around $100 million or more.
- Average daily volume of at least 1 million shares, when possible.
- Price above $2–$3.
- ADR above 6%.
- Price above the 50-day and 200-day simple moving averages for the long candidates I’m considering.
These filters help me build a watchlist; they do not tell me what to buy. Dollar volume, share volume, and ADR are screening measures, not guarantees of a narrow spread, a good fill, or a profitable trade.
See my guides to swing trading scans and dollar volume in TC2000 for more on building a candidate list.
2. Trade setups I recognize
I focus on four main setups:
- High-tight flags
- Bull flags
- Base breakouts
- Trendbreaks
I look for clear structure, a defined trigger, and a place where the setup would no longer make sense. Tight pivots and contracting volume can be useful context, but no single chart feature confirms that a breakout will work.
I also spend time studying historical examples of the patterns I trade. Repeated chart review helps me recognize how the same setup can look different across stocks and market conditions.
For examples, see my article on swing trading setups and strategies.
3. Check the market before entering
Before I take a trade, I check the broader market, especially SPY and QQQ. I prefer when the indexes are above their 20-day moving averages and trending higher. It is a better sign for my long setups when the 10-day SMA is above the 20-day SMA and the 50-day SMA is rising.
These are conditions I prefer, not a guarantee that a trade will work. If the indexes are weak, extended, or moving erratically, I become more selective. A strong individual chart can still fail when the broader market is under pressure.
4. Wait for my entry trigger
I want the stock to be above the previous day’s high before I take a long entry. I then use an opening-range breakout as the trigger. Depending on the setup and how quickly the stock is moving, I may use a 1-minute or 5-minute opening-range high.
The trigger is part of my plan; it is not a reason to chase a stock after it has already moved too far. If the price has run away from the setup or the stop would be too wide, I let it go.
5. Place the stop and size the position
For my initial stop, I generally use the low of day when that level makes sense for the setup. I want the distance from entry to stop to be no more than 0.8 ADR. If the low of day is too far away, I skip the trade instead of widening the risk to make it fit.
Position value and risk are not the same thing. A position worth 10% of an account does not mean you are risking 10% of the account. The planned risk depends on how many shares you hold and how far the stop is from the entry.
The basic calculation is:
Planned risk = number of shares × (entry price − stop price)I usually allocate around 10% of account equity to a position, but I also check the dollar amount at risk to the stop before entering. If either the position is too large for my plan or the stop is too wide, I reduce the size or pass on the trade.
A stop order does not guarantee an exit at the stop price. In a fast market or after an overnight gap, the execution price can be different. That is one reason I avoid treating planned stop risk as a guaranteed maximum loss. The SEC’s Investor.gov stop-order bulletin explains how stop orders work and why execution may differ from the stop price.
6. Take partial profits and manage the rest
My current profit-taking plan is based on ADR multiples:
- At a gain of 2.5 ADR from my entry, I sell 25% of the original position.
- At a gain of 5 ADR, I sell another 25% of the original position.
- For the remaining shares, I use daily moving averages to manage the exit.
If the stock closes below the 10-day SMA, I sell about half of the remaining position. If it later closes below the 20-day SMA, I exit the rest. I follow the sequence in my plan rather than changing the exit because of one intraday dip.
These are my rules for managing a trade that moves in my favor. They do not mean that every position will reach either target, and the stock can reverse before a planned exit executes.
7. Use a defined re-entry rule
If I get stopped out, I do not automatically buy the stock again. I consider a re-entry only if price takes out the high of day and remains above the previous day’s high. I limit myself to a maximum of two attempts per stock in one day.
If the setup has failed or the market has changed, I move on. The point of a re-entry rule is to prevent me from trying to catch a falling stock or taking repeated entries without a new trigger.
Keep a trading journal
I record the setup, entry, stop, position size, exit, and market conditions for each trade. I also note whether I followed my plan. Reviewing this information helps me identify which parts of my process need more work and whether a rule is being applied consistently.
Do not judge a rule by one winning or losing trade. I look at a meaningful group of trades and include costs, missed fills, and cases where I did not follow the plan.
Frequently asked questions
What are the most important swing trading rules?
For me, the most important rules are to define the setup, entry trigger, stop, position size, and exit before entering. I also check market conditions and follow a set re-entry limit. Your own rules should fit your strategy and be tested consistently.
How much of my account should I risk on a swing trade?
There is no single risk percentage that suits every trader. I separate the amount allocated to a position from the amount I could lose if the stock reaches my planned stop. The risk depends on the share count and the distance between entry and stop, and the actual fill can differ from the stop price.
Do these swing trading rules guarantee profitable trades?
No. Rules can help me make decisions consistently, but they cannot remove market risk or guarantee that a setup will work. I review my results and change a rule only after looking at enough trades to understand what is happening.
Final thoughts
A trading plan helps me decide what to scan, when to enter, where to place my stop, how much to trade, and how to manage the position. The details matter less than having rules that are clear enough to follow and reviewing whether I actually followed them.
Start with rules you can explain and track. Study the setups you trade, keep a journal, and revise the plan based on your results rather than changing it after every win or loss. You can also read my guides to swing trading scans and swing trading setups.
